For rny purpose I want to define inflation as a persistent and more or. less substantial decline in the value of money. Changes in the value of money are measured by changes in price index figures – or, in other words, by changes in price levels – for these indicate the change over time in the total amount of money paid for a certain basket of goods. I do not propose to make a contribution to the more intricate aspects of monetary theory. This would involve a discussion – for instance – of changes in price levels which do not actually represent changes in the value of money. Examples would include purely statistical changes – thrown up by the method applied in computing the relevant index figure – and price level changes caused by changes in the terms of trade, either between sectors within one national economy or between several national economies. None of these problems will be considered. I shall, I regret to say, only concern myself with less subtle aspects. That is why I have chosen a simple definition: a persistent and more or less substantial decline in the value of money.

The use of money makes it possible to replace a necessarily primitive economy based on barter by an efficient economy based on division of labour. In our society, money has two functions of fundamental importance. It serves as a unit of account and as a means of payment. As a unit of account it enables the virtually infinite number of value relationships between all t~e economic goods produced to be reduced to a straightforward pattern. I~ allows all participants a clear view of the economic process as a whole. In the economic universe, the unit of account is the one fixed point – the Archimedean point, one might say. Individual prices may change; the unit of account, given normal circumstances, is immutable.